two-part tariff

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A pricing system by which customers pay more per unit for their purchases up to some given quantity, with a lower price per unit for further purchases. Such a system is only practicable when the customer can be identified, and resale is difficult. The argument for two-part tariffs is that the higher price for the first n units bought reflects the overhead costs of supplying a particular customer: for example, gas, electricity, and water suppliers incur costs in connection to the mains, however much or little is then bought. The simplest two-part tariff involves a fixed access fee followed by a constant charge per unit of consumption. In the context of a club, the fixed fee can be seen as a membership charge. Two-part tariffs are a special case of second-degree price discrimination designed to secure some of the customer's consumer surplus.

Subjects: Economics.

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